Review by the President and CEO Jussi Pesonen President and CEO 31 March 2020
Review by the President and CEOJussi Pesonen
President and CEO
31 March 2020
| © UPM| © UPM| © UPM
Milestone year since last AGM
• Uruguay pulp mill investment
• Biochemicals refinery investment
• Climate commitment for 1.5ºC with tangible actions
• Good business performance maintained
• Record-strong cash flow and balance sheet
• Distinguished recognitions for our responsibility performance
2
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Contents
• Financials 2019
• Future beyond fossils
– Biofore strategy
– Climate commitment
– UPM Paso de los Toros
– UPM Biochemicals
• Effective capital allocation
Financials 2019
| © UPM
2019: good performance and record cash flow
5
EBITDA
EUR 1,851m –17m
Comparable EBIT
EUR 1,404m –109m
2019 vs. 2018:
Net debt
EUR –453m –142m
Operating cash flow
EUR 1,847m +517m
Comparable EPS
EUR 2.07 –0.17Net debt / EBITDA
–0.24x –0.07x
Sales
EUR 10,238m – 2%Comparable ROE
11.2% –1.7pp
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Comparable EBIT in 2019 vs. 2018
0
200
400
600
800
1 000
1 200
1 400
1 600
1 800
2018 2019
EURm
Prices
Variable
costs
Fixed
costs
Deliveries
1,51314.4% 1,404
13.7%
Currency,
net impact
Depr.,
forests,
plantations,
other
Comparable EBIT
6
Successful margin
management
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0,0
2,5
5,0
7,5
10,0
12,5
15,0
0
50
100
150
200
250
300
2014 2015 2016 2017 2018 2019
0,0
2,5
5,0
7,5
10,0
12,5
15,0
0
100
200
300
400
2014 2015 2016 2017 2018 2019
EURm % of sales
UPM Communication Papers
Comparable EBIT by business area
0,0
2,5
5,0
7,5
10,0
12,5
15,0
0
50
100
150
200
250
300
2014 2015 2016 2017 2018 2019
0
5
10
15
20
25
30
0
150
300
450
600
750
900
2014 2015 2016 2017 2018 2019
0,0
2,5
5,0
7,5
10,0
12,5
15,0
0
50
100
150
200
250
300
2014 2015 2016 2017 2018 2019
EURm % of salesUPM Specialty PapersEURm % of salesUPM Biorefining
0
10
20
30
40
50
60
0
50
100
150
200
250
300
2014 2015 2016 2017 2018 2019
% of salesUPM RaflatacEURm % of salesUPM Plywood EURmEURm % of salesUPM Energy
7
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Business area returns and long-term targets
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30ROCE%
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30ROCE % *)
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30ROCE %
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30ROCE %
*) shareholdings in UPM Energy
valued at fair valueLong-term return target
UPMSpecialty Papers
UPMCommunication
PapersUPM
Plywood UPM Raflatac
UPMEnergy
UPMBiorefining
FCF/CE %
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30ROCE %
8
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-0,5
0,0
0,5
1,0
1,5
2,0
2,5
3,0
-750
0
750
1 500
2 250
3 000
3 750
4 500
2014 2015 2016 2017 2018 2019
Net debt/EBITDA (x)
Net debt and leverage
Net debtEURm
Group financial performance
9
0
200
400
600
800
1 000
1 200
1 400
1 600
2014 2015 2016 2017 2018 2019
EURm Comparable EBIT
0
2
4
6
8
10
12
14
2014 2015 2016 2017 2018 2019
% Comparable ROE
Target: 10%Target: EBIT growth
Policy: ≤ 2x
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Consistently strong cash flow
10
• 2019: record annual operating cash flow
at EUR 1,847m (1,330m)
• Working capital decreased by EUR 276m
(increased by 209m)
0
200
400
600
800
1 000
1 200
1 400
1 600
1 800
2 000
2014 2015 2016 2017 2018 2019
Cash flow
Free cash flow
Operating cash flow
EURm
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Dividend proposal: EUR 1.30 per share
11
0
10
20
30
40
50
60
70
80
0,00
0,20
0,40
0,60
0,80
1,00
1,20
1,40
1,60
2013 2014 2015 2016 2017 2018 2019*
EUR per share
% of operating cash flow per share
Long term dividend policy
• UPM aims to pay an attractive dividend,
30–40% of operating cash flow per share
Dividend proposal for 2019
• EUR 1.30 (1.30) per share,
totalling EUR 693m
• 38% of 2019 operating cash flow
*) Board’s
proposal
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Industry leaderin responsibility
12 | © UPM
| © UPM
2020 and the COVID-19 pandemic
During Q1/20 UPM businesses have not been adversely impacted by the pandemic
and the customer demand has been on expected level.
UPM’s financial position is strong. UPM has net cash in the balance sheet and high
liquidity reserves.
UPM is taking extensive precautions to protect the health and safety of its employees
and to ensure business continuity.
Despite these efforts it is possible that during an extended pandemic the operation of
one or more units or the supply chain and logistics could be disrupted.
Although many UPM products serve essential everyday needs, it is likely that the
customer demand for some UPM products would deteriorate due to the slowing world
economy.
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Future beyond fossils
| © UPM
Biofore strategy
15 | © UPM
We create value by seizing the
limitless potential of bioeconomy
PERFORMANCE
INNOVATION
GROWTH
RESPONSIBILITY
Strong long-term fundamentals for
demand growth and high barriers to entry
| © UPM
We act through EMISSIONS
65% less CO2 emissions
We act through PRODUCTS
Innovate novel products
We act through FORESTS
Climate-positive forestry
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Driving long-term value creation – mitigating climate change
| © UPM
Our focus areas for growth
17 | © UPM
UPM Paso de los TorosUPM invests in a world class pulp mill in Uruguay
| © UPM
UPM invests in a world class pulp mill in Uruguay
• A highly competitive new pulp mill with annual
production capacity of 2.1 million tonnes of
eucalyptus pulp
• Mill investment of USD 2.7 billion
• Investments in port operations in Montevideo, local
facilities in Paso de los Toros of USD 350 million
• Scheduled start-up in H2 2022
• Industry-leading safety and sustainability
performance of the value chain from plantations to
customers
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UruguayArgentina
Brazil
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Transformative step in UPM’s pulp business and in UPM’s future earnings
• Significant step for UPM’s future earnings
– One of the most competitive mills in the world
– Expected cash cost level of USD 280 per
delivered tonne of pulp(*
– Attractive returns in various market scenarios
– Carefully prepared to ensure long-term
competitiveness and to minimise risks both in the
project phase and during continuous operations
• Step change in UPM’s pulp business
20*) including variable and fixed costs of plantation operations, wood
sourcing, mill operations and logistics delivered to the main markets
2019 2023
UPM Pulp capacity
3.7mt/a
Northern
softwood
Northern
hardwood
Eucalyptus
5.8mt/a
| © UPM
UPM BiochemicalsSwitch from fossil raw materials to renewable solutions
21 | © UPM
| © UPM
UPM invests in next generation biochemicals
• EUR 550 million investment in an industrial
scale biorefinery at Leuna, Germany
• 100% wood-based biochemicals provide
alternatives to fossil materials in various
consumer-driven end-uses
• Total annual capacity of 220,000 tonnes
• Scheduled to start up by the end of 2022
• Safety and sustainability of the value chain
based on UPM’s high standards
22 | © UPM
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UPM creates a totally new sustainable business with large growth potential
• Major milestone in UPM’s transformation
• UPM biochemicals respond to the customers’
increasing needs for renewable alternatives
• Current supply is limited and high-quality
biochemicals are priced at a premium
• Sustainable wood supply, unique technology,
existing infrastructure and proximity to customers
enables a good cost position
• Attractive returns: ROCE target of 14% once
the facility is fully ramped up and optimized
| © UPM
Renewable product range
2424 | © UPM
• Bio-monoethylene glycol (bMEG): textiles, PET bottles, packaging, deicing fluids
• Renewable functional fillers:rubber applications, a sustainable, light-weight and
high-purity alternative to carbon black and silica
• Bio-monopropylene glycol (bMPG): composites, pharma, cosmetics, detergents
• Industrial sugars:various applications in chemicals industry
Effective capital allocation
| © UPM
5-year cumulative cash flow (2015–2019)– efficient capital allocation in action
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Net debt/
EBITDA
< 0x
Industry-leading
balance sheetDeleveraging
EUR 3.2bn
Strong operating cash flow
EUR 7.6bn
Attractive dividend
EUR 2.6bn
Focused investments
EUR 1.8bn
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Illustrative capital allocation *) for the next 5 years
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Performance focus
Strong cash flowAttractive dividend
EUR ~3.5–4bn
High return
investments
EUR ~4–4.5bn Maintain headroom
Net debt/
EBITDA
< 2x
Industry-leading
balance sheet
*) This is not a forecast